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International Journal of Trend in Scientific Research and Development (IJTSRD)

International Open Access Journal | www.ijtsrd.com

ISSN No: 2456 - 6470 | Volume - 2 | Issue – 6 | Sep – Oct 2018

Effect off Audit Quality on


n Financial Performance:
Performance
Evidence from Deposit Money Banks in n Nigeria
Ezejiofor, Raymond A.. Erhirhie, Felix E.
Department of Accountancy, Nnamdi Azikiwe Department of Accountancy,
Accountancy Nnamdi Azikiwe
University, Awka, Nigeria University,
niversity, Awka,
Awka Nigeria

ABSTRACT
This study investigates the effect of audit quality on Audit quality plays a significant role in maintaining
the financial performance of deposit money banks in an efficient market environment and independent
Nigeria. The study adopted ex post facto research quality audit underpins confidence in the credibility
design, data for the study were collected from annual and integrity of financial statements which is essential
reports
ts and accounts of quoted Nigerian deposit for well-functioning
functioning markets and enhanced financial
money banks. Regression analysis and coefficient performance (Farouk
Farouk & Hassan, 2014).
2014
correlation were employed to test the formulated
hypotheses. Findings revealed that there is a Banks and other financial intermediaries are the heart
significant effect between audit quality and financial of the world's recent financial crises. The
performance of Nigerian deposit money banks. Based deterioration of their asset portfolios, coupled with
on this, the study recommends among others that the fraudulent acts of presenting fictitious financial
management of deposit money banks in Nigeria statements and lack of adherence to corporate
should increase the number of foreign directors that governance principles largely due to distorted credit
have skills, experience and would like to protect their management, were some of the main structural
integrity, reputation
putation and professional competence. sources of the crises (Sanusi, 2010; Kashif, 2008;
Fries, Neven & Sea bright, 2002). This draws the
Keyword: Audit Quality, Financial Performance, attention of the public and investors to see the board
Deposit Money Banks in Nigeria of directors as the major actor responsible for the
failure of corporations, both in developed and
INTRODUCTION developing nations. In fact, board of directors are
The financial statement audit is a monitoring criticized
icized for being responsible for mismanagement of
mechanism that assists in reducing the information shareholders’ wealth, both in developed and
asymmetry and protects the interests of the various developing economies, more especially, in Nigeria
stakeholders by providing them reasonable assurance where this study is being conducted. They are seen as
that the financial statements are free from material the fore-runner
runner or prime factor for the fraud cases that
misstatements. Meanwhile, the societal role of had
ad resulted in the failure of major corporations, such
auditors is a key contribution to financial as Enron Corporation, Tyco International, WorldCom,
performance, in terms of reducing tthe risks of Global Crossing, Arthur Anderson, Marconi,
significant misstatements and by ensuring that the Parmalat, Oceanic bank plc, Wema bank plc,
financial statements are elaborated according to NAMPAK, Fin bank, Spring bank, Afribank,
fundamental rules and regulations, hence, lower risks Intercontinental bank, Bank PHB and Cadbury PLC in
on misstatements increase confidence in capital Nigeria (Adeyemi & Fagbemi, 2011; Ogbonna &
markets, which in turn lowers the firms co
cost of capital Ebimobowei, 2011; Ajibolade, 2008).
(Heil, 2012; Watts and Zimmerman, 1986).
The questionable role of auditor's in ensuring the
quality, reliability and credibility of financial

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performance has been a debate. This is becau because that controversial issues for the recent decades and
auditor's independence from their clients can be most previous evidence suggests that lack of audit
compromised or impaired through poor regulation of quality
uality is among the most important reason for
the auditing practice. Provision of non-- audit services financial and corporate scandals (Soltani, 2014).
to the client, auditor's personal interest in the client's Actual quality shows levels of risk of material errors
business among others. Thus effective and perceived in financial statements that can be reduced by the
qualities (usually designated as apparent quality) are auditor. Perceived quality indicates the level of
necessary for auditing to produce beneficial effects as confidence
idence of users in financial statement and the
a monitoring device. auditor’s effectiveness in reducing material
misstatement in financial statements prepared by
There is a limited study on the significant measures of management. Titman and Trueman (1986) see audit
audit quality and those of financial performance of quality as the accuracy of the information reported by
deposit
eposit money banks in Nigeria. This makes the auditors. DeAngelo
Angelo definition captures the role played
present study imperative and necessary at the moment by auditors in financial statement preparation. Hence,
as it seeks to fill the gap by investigating the effect of audit quality combines the ability of an auditor to
audit quality on financial performance of deposit detect a breach (auditor competence) and a
money banks in Nigeria. willingness to report such a breach (auditor
independence).
The aim of the study is to statistically examine the
effect of audit
udit quality on financial performance of However,
wever, the Financial Reporting Council (FRC)
quoted deposit money banks in Nigeria. The Specific (2006b) considers five factors that influence audit
objectives of the study are; quality to includes: audit firm culture, skills and
1. To determine the effect of audit committee size on personal qualities of audit partners and staff, the
return on equity of quoted Nigerian deposi
deposit money effectiveness of the audit process, and the reliability
banks. and usefulness of audit reporting, amongst factor that
2. To examine the extent of which audit committee are exogenous to the auditors.
independent affect return on equity of quoted
Nigerian deposit money banks. Consequently, larger firms are able to conduct their
audits to a higher standard than smaller firms. Thus
REVIEW OF RELATED LITERATURE audit quality (AQ) is dichotomous in nature and the
Conceptual Framework size of audit
dit firm (Big four or non-Big
non four) will be
Audit Quality used as a proxy for audit quality (Ejeagbasi, et al,
Okaro, Okafor and Ofoegbu (2015) assert that audit 2015).. Further, this variable equals 1 if the external
quality is market-assessed
assessed joint probability that an auditor of a deposit money bank in Nigeria is among
auditor will both discover a breach in the client the Big four (Deloitte, Ernst and Young, Price Water
accounting system and also report the breach, this Coopers and KPMG) and 0 if otherwise.
means that the auditor has both the technical
competence to detect any material errors during the Composition of the Audit Committee
auditt process, and the independence to ensure that Based on the Audit Committee, on the one hand
material errors and omissions are corrected or internal auditing contribute to corporate governance
disclosed in the auditor’s report. In a like manner, by bringing best practice ideas of internal controls and
Jackson, Moldrich and Roebuck (2008) view the risk management processes to the audit committee;
quality of audits from actual and perceived quality. providing information about any fraudulent activities
activit
or irregularities; conducting annual audits and
DeZoort, Hermanson, Archambeault and Reed (2002) reporting the results to the audit committee;
assert that larger audit firms are better than smaller encouraging audit committee in conducting periodic
audit firms at detecting errors because they have reviews of its activities and practices (Ejeagbasi,
greater resources at their disposal and can attract Nweze, Ezeh & Nze, 2015).. From the other hand,
employees with superior skills and experience. Audit effectivee audit committees strengthen the position of
qualityy therefore seems as auditors use some technics the internal audit function by providing an
to recognize misstatements in clients accounting independent and supportive environment and review
system and report the misstatements. Audit quality is the effectiveness of the internal audit function

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(Theofanis, George, Evaggelos & Ioannis, 2010). The appropriate measure selected to assess corporate
code provided foror an audit committee that is expected performance is considered to depend on the type of
to be effective and efficient. As such the composition organization to be evaluated and the objectives to be
of the audit committee is a dichotomous variable, achieved through that evaluation.
assigned 1 if there are at least three non – executive In addition,
ion, measuring performance is very important
directors on the audit committee, otherwise o. because it builds on the results, make different
decisions in economic units. According to (Benjalux,
Financial Performance 2006) performance measures are the life blood of
There are several aspects of performance, each of economic units, since without them no decisions can
which contributes to the overall performance in an be made. Financial performance Measure is one of the
organization. Despite the evolution of various important performance measures for economic units.
available benchmarks and performance measurement, Financial performance measures are used as the
the answer to what is performance may still bbe hard to indicators to evaluate the success of economic units in
pin down. The banking sector aims for strong achieving stated strategies, objectives and critical
performance, but few banks worry about what success factors (Katja, 2009).
constitutes such performance. The current run up of
the stock market, at a time when corporate profits are Performance measurement is therefore the process
fast declining, raises the question of whether or not whereby an organization establishes the parameters
banks are doing satisfactory good job for their within which programmes, investments, outputs and
shareholders (Ghouri & Khan, 2011). acquisitions are reaching the desired results (Hunger
& Wheelan, 1997). They further f explain that
Hansen and Mowen (2005), states that firm performance measurement involves ongoing data
performance is very essential to management as it is collection to determine if a program is implementing
an outcome which has been achieved by an individual activities and achieving objectives, the ongoing
or a group of individuals
iduals in an organization related to monitoring and reporting of program
its authority and responsibility in achieving the goal accomplishments, particularly progress toward pre- pre
legally, not against the law, and conforming to the established
tablished goals (This is typically conducted by
morale and ethic. Performance is the function of the program or agency management) and a system for
ability of an organization to gain and manage the assessing performance of development interventions
resources in several different ways to develop against stated goals. From the above, it could be
competitive advantage. affirmed that performance measurement is a measure
or evaluation
tion of achievement with predetermined or
The main objective of financial performance expected target of an organization. It can also be
measuring is to determine the operating and financial looked at as the process whereby a company
characteristics and the efficiency and performance of establishes the parameters within which
economic unity management, as reflected in the achievements, programmes, investments, outputs and
financial records and reports (Amalendu, 2010). acquisitions are reaching the desired results.
Akinsulire, (2008) and Pandy (2003) points out that
no performance review is beyond dispute, for Review of related Studies
instance, reported profit is a matter of opinion. If Farouk and Hassan (2014) examined the impact of
income is to be measured in terms of the increase or audit quality on financial performance of quoted firms
decrease in the wealth of an enterprise, obviously in Nigeria. Multiple regression analysis was employed
some definitions of that stock of wealth is required. in analyzing the data and testing the stated
Akinsulire, (2008) and Pandy, (2003) measures hypotheses.s. The results of the findings shows that
wealth in three categories; as financial capital – the auditor size and auditor independence have significant
equity stake in an enterprise in money terms; rea real impacts on the financial performance of quoted
financial capital, the equity stake in an enterprise in cement firms in Nigeria. However, auditor
real terms (the proprietary concept); operating independence has more influence than auditor size on
capacity capital, the ability of the enterprise to financial performance.
maintain its ability to provide goods and services (the
entity concept). Hunger and Wheelan (1997) suggest Moutinho (2012) investigated the relationship
performance as the end result of activity and the between audit fees and firm performance. Using a

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sample of U.S. publicly traded, non-financial
financial firms characteristics in Nigeria. A sample of 20 quoted
covering the period from 2000 to 2008, a fixed effects companies was selected for a period of 2009 to 2011
model is presented to estimate firm operating Ordinary Least Square technique was adopted in the
performance.
erformance. The model included standard control analysis. The result revealed that multi-nationality
multi
variables, such as size, leverage, sales growth and connections of companies, company size and audit
research and development intensity. In addition, fees paid to auditors are the major determinants of
measures of corporate governance were introduced. audit delay in Nigeria. Also the paper revealed that
Specifically, increases (decreases) in operating audit report lag for each of the companies takes a
performance
nce are connected with decreases (increases) minimum of 30 days and a maximum of 276 days for
in audit fees. Nigerian companiess to publish their annual reports.
Nigeria listed companies take approximately two
Ziaee (2014) examined the relationship between audit months on the average beyond their financial position
quality and financial performance of companies in date before they are finally ready for the presentation
Iran. For this population the financial manager is of the audited accounts to the shareholders at the
accepted in Tehran Stock Exchange and 2008 to 2012 annual general meetings.
have been selected. Using primary data, he found that
audit quality could affect the financial performance of Fagbemi and Uadiale (2011) study used a sample of
companies. forty-five
five audited financial statements of quoted
companies. The data collected were analyzed using
Okoye, Okaro and Okafor (2015) studied corporate descriptive and inferential statistics. Findings revealed
governance factors that affect audit quality, some of that the average number of days for fo which financial
which if addressed will help in stemming the tide of reports are ready after the year end is one hundred and
audit failures. The study used secondary data forty-one
one days. The earliest time for which audit
extracted from the annual reports of a sample of 104 report is made ready after year end is thirty-one
thirty days
companies randomly selected from a population of afterwards. The result indicates a relationship between
134 of non-bank
bank companies listed in the Nigerian corporate reporting timelineness
imelineness and company
Stock Exchange, they concluded
cluded that small board size affiliation with a foreign entity. However, the results
and greater board diligence impact positively on audit found no correlation between timeliness of financial
quality. statements, business complexity and business
leverage.
Yuniarti (2011) investigated the relation between
factors that affect audit quality of 24 Bandung firm at Iyoha (2012) study the impact of company attributes
2009. He suggest that higher audit fees increase and on the timelinessss of financial reports in Nigeria a
improve
rove audit quality due to auditors effort and sample of 61 companies’ annual reports for ten (10)
accounting firm should enhance amount of audit fees years were selected. The data were analyzed and
that lead to higher audit quality. He also found that results estimated using Ordinary Least Square (OLS)
audit fees is significantly and positively affect audit Regression. The findings reveal that the age of
quality. company is the majorr company attribute that
influences the overall quality of timeliness of
Hoitash, Markelevich, & Barragato (2007) examined financial reports. It was also observed a significant
the relationship between audit fees and audit quality. difference in the timeliness of financial reporting
Their paper show that fees paid to auditor can impact among industrial sectors.
in way; large fees paid to auditor increases quality of
audit. Higher audit fees are related to non non- audit Egbunike and Abiahu (2017) determine the effect of
service makes auditors more ore dependent on their audit firm characteristics on financial performance of
clients. In their study, they examined audit fees for money deposit banks in Nigeria. Specifically the
period of 2000 to 2003 and found that there is a study shall determine the effect of audit quality, audit
significant positive relationship between audit fees fee, and audit report lag on return on assets of
and audit quality. Nigerian banks. Next, ascertain the effect of o audit
quality, audit fee, and audit report lag on earnings per
Modugu, Erahbhe and Ikhatua (2012) examine the share of Nigerian banks. And finally, examine the
relationship
ip between audit delay and company effect of audit quality, audit fee, and audit report lag

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on net profit margin of Nigerian banks. The study Woodland and Reynolds (2003) examined the
adopted the ex post facto and correlational
elational research association between indirect measures
meas of audit quality
design. The study population comprised all money and financial statement analysis using multivariate
deposit banks in existence as at 2015 financial year regression analysis. They found that audit fees is
end. The study finds that audit quality has a positively associated with financial statements but do
significant effect on return on assets of Nigerian not find evidence that auditor size, tenure or industry
banks; Audit fee and audit report lag had no specialization are associated
ssociated with audit quality in the
significant effect on return on assets, earnings per directions predicted. Their results provide new
share and net profit margin of Nigerian banks. evidence as to the current usefulness of these indirect
measures in predicting audit quality.
Oladipupo (2011) investigated the extent of audit lag
in Nigeria. Forty companies were selected. Both Zureigat (2010) examined the effect of financial
univariate and multivariate analyses were per performed structure among Jordanian listed
l firms on audit
on the data collected. The study observed that; audit quality. Using a sample of 198 companies, his
delay ranged from 16 to 284 days; Nigeria listed analysis of logistic regression shows a significant
companies take approximately four months on the positive relationship between audit quality and
average beyond their balance sheet date before they financial structure.
are finally ready for the presentation of the audited
accounts to the shareholders; That profitability, total Nam (2011), examined the relationship between audit
assets, total debt, total equity, audit fees and industry fees as a proxy y for auditor independence and audit
type have no significant impact on audit delay. quality of firms in New Zealand. Employing three
multiple regression models for a sample of New
Bouaziz (2012), examined the relationship between Zealand companies, his study discovered that the
auditor size and financial performance
nce on a sample of provision of non-audit
audit services by the auditors of a
26 Tunisian firms listed on the Tunis Stock Exchange. firm comprises the auditor’s
ditor’s independence, abnormal
The result shows that auditor size has an important audit fee change rate is negatively associated with
impact on the financial performance of firms in terms audit quality and auditor’s independence of the
of return on assets and return on equity. previous year impacts on the audit fee that is
negotiated in the current year.
Miettinen (2011) examined the relationship
tionship between
audit quality and financial performance. Audit quality Musa and Shehu (2014) examine
xamine the impact of audit
a
was measured using auditor size and audit committee quality on financial performance of quoted firms in
meeting frequency. The result shows that audit quality Nigeria. The study is descriptive in nature and the
has both a direct effect as well as a mediated effect correlational and ex-post
post facto designs were adopted
through audit size on financial
inancial performance. The in carrying out this research. Data were obtained
results imply that measures of audit quality are not basically from the published annual reports and
merely symbolic but that they contribute to financial accounts, and notes to the financial statements of the
performance. four firms that represent the sample of the study. The
data collected were quantified and presented in tables.
Anderson and Verma (2012), examined the Multiple regression analysis using the SPSS Version
relationship between auditor size, auditor tenure and 15.0 was employed in analyzing the data and testing
audit firm rotation
tion using a probit model which they the stated hypotheses. The results of the findings
developed. The data they collected from 2,148 listed shows that auditor size and auditor independence have
Asian companies shows that big audit firms provide significant impacts on the financial performance of
high quality audit because big audit firms are more quoted cement firms in Nigeria. However, auditor
conservative than non-bigbig audit firms. They also independence has more influence than auditor size on
discovered thatt national level factors have a strong financial performance.
influence on audit quality. Auditor tenure is
associated with impaired audit quality and audit firm Temple, Ofurum and Egbe (2016) examine the
rotation can help promote audit quality. influence of audit committee characteristics on quality
of financial reporting in listed Nigerian banks. The
study used documentary records gotten from the

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financial statements of fifteen twelve-monthly
monthly reports correlation existed suggesting that a small board size
and accounts of the banks whose stocks
tocks are traded in seems to be more effective, and is more likely to use
the Nigerian Stock Exchange as at December 31, RBIA, as a complementary mechanism.
2014. The research design utilized in this dissertation
is correlation research design. The investigator On contrary Krishnan, (2005)) carried out an empirical
adopted Jones (1991) modified model which provided analysis on the role of risk based audit on internal
the measure for earnings management nt which is the corporate governance and found that the percentage of
representation for quality of financial reporting. The non-executive
executive directors and supervisors on the board
test of hypotheses and other breakdown of data were of directors was significant negative associated with
empirically completed by SPSS statistic 22.0. The the use of RBIA indicating that the higher level of
outcomes of the study depicted that audit committee independent directors and supervisors on the board
“independence has no significantt effect on earnings presents better corporate governance, hence may not
management in quoted Nigerian banks. employ higher percentage of RBIA for monitoring of
risk management.
Matoke and Omwenga (2016) sought to establish the
relationship between audit quality and financial Okibo and Kamau (2011) carried out a study to
performance of listed companies in Nairobi Securities explore internal auditors’ compliance with Quality
Exchange. This study adopted a descriptive research Assurance Standards: A case of state owned
design. The sampling frame was drawn from corporations in Kenya and found out that there is
directories of the Nairobi Securities Exchange generally low compliance with quality assurance
Limited; consisting of all the 9 listed companies in standards among most internal audit units in state
Kenya. The study used simple random sampling to owned corporations
tions in Kenya. The research identified
select 89 respondents since the study population was some of the reasons that led to low compliance to
homogenous.
genous. Both primary and secondary data was include; lack of awareness of standards; non- non
used. After inspection, the data was coded and membership with IIA; non-adoption
adoption of IPPF; age and
analyzed by the use of descriptive statistics and experience of the internal audit department and
multiple linear regression analysis using SPSS. understanding of the quality
uality assurance standards.
Findings of the study showed that the effect of audit
quality on financial
nancial performance is positive and Woodland and Reynolds (2003) examined the
significant. The impact of auditor size was also association between indirect measures of audit quality
positive and significant, although, its impact was and financial statement analysis using multivariate
lesser that of auditor independence. regression analysis. They found that audit fees is
positively associated with financial statements but do
Hamed, Rohaida, Siti Zaleha, and Mohamed (2016) not find evidence that auditor size, tenure or industry
examine the impact of audit qualit quality on firm specialization are associated with audit quality in the
performance for Malaysian listed companies for the directions predicted. Their results provide new
period of 2003 to 2012. In this study used audit fees evidence as to the current usefulness of these indirect
and audit firm rotation as proxies for audit quality. measures in predicting audit quality.
Return on assets and Tobin’s q are used as measures
for firm performance. The study found nd that there is Abu Bakar et al., (2005) conducted a survey by
insignificant relationship between audit quality among 116 loan officers in Malaysia. The results
proxies (audit fees and audit firm rotation) and ROA. showed that 75.60 per cent of the respondents
They also found that an audit fee is significantly and indicated that the size of the audit firm did affect the
positively related to Tobin’s Q. However, audit firm auditor independence and 74.4074. per cent of them
rotation is insignificantly related to Tobin’s Q. mentioned that the level of competition in the audit
service market influenced the auditor independence.
Chen (2003) investigated the relationship between Furthermore, the results indicated that the provision of
Risk Based Internal Audit and corporate governance MAS had a negative effect on the auditor
structures. It was found that there existed a significant independence in Malaysia.
positive relationship between the level of RBIA used
and corporate governance nce bank’s board size. The Nam (2011)
2011) examined the relationship between audit
findings of this study indicated a significant negative fees as a proxy for auditor independence and audit

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quality of firms in New Zealand. Employing three Yi-Fang, Lee-Wen, and Min--Ning (2015) investigate
multiple regression models for a sample of New the relative importance between service quality and
Zealand companies, his study discovered that the firm size in the performance determinants of audit
provision of non-audit
audit services by the auditors of a firms under different market segments and business
firm comprises the auditor’s independence, abnormal strategies. This study extracts a human capital-based
capital
audit fee change rate is negatively associated with service quality by the principal component
co analysis
audit quality and auditor’s independence of the technique. In terms of market segment, total samples
previous year impacts on the audit fee that is are divided into national, regional, and local audit
negotiated in the current year. firms. Further, based on the business strategies audit
firms take, regional and local firms are classified into
Abu, Okpeh and Okpe (2016) study the influence of two categories: stability
lity and expansion type firms.
Board Characteristics on the Financial Performance of Empirical results indicate that service quality is a
listed deposit money banks in Nigeria for the period more important performance determinant than firm
of 2005-2014.
2014. The total number of listed deposit size in the national firms.
money banks as at 31st December, 2014 14 are seventeen
(17) out of which a sample of fifteen (15) were used However, few studies have examined the significant
for the study. Multiple regressions were used for the measures of audit quality and those of financial
fin
analysis of data collected from secondary source performance of deposit money banks in developing
through the annual reports and accounts of the economies such as Nigeria. This study is expected to
sampled banks. Findings revealed th that foreign fill an existing gap in knowledge by examining the
director is significantly and positively correlated or effect of audit quality on the performance of quoted
influenced the Performance of deposit money bank, deposit money banks in Nigeria.
while the grey director have negative significant
effect on the Performance of deposit money banks in METHODOLOGY
Nigeria. Other variables such as execu
executive director, Research Design
independent non-executive
executive director and women Ex-post
post facto research design was adopted for the
director have no significant impact on banks study. This is appropriate because the study aims at
performance in Nigeria. measuring the relationship between one variable and
another, in which the variables involved are not
Bogale (2016) examine the determinants of external manipulated by the researcher.
rcher.
audit quality proxy by discretionary (abnormal)
accrual based on audit firm specific and company Population of the Study
related attributes in Ethiopian manufacturing share This study makes use of deposit money banks quoted
companies. The study adopted quantitative method of on the Nigerian Stock Exchange. The study covered
research approaches to test a series of research eight years annual reports and accounts of these
hypothesis. Specifically, the study used documentary companies from 2009 to 2016. The banks are as
analysis of companies’ audited ed financial statements Access bank plc, Diamond bank
ban plc, First bank plc,
and personal inquiry with audit directors/officials of FCMB plc, GTB plc, Zenith bank plc, Sterling bank
audit firms and company managers. The study plc, UBA plc, Fidelity bank plc, Wema bank plc,
selected a sample of eighteen (18) companies for the Unity bank plc, Eco bank plc, Union bank plc, Skye
period of five years (2011-2015)
2015) with the total of 90 bank plc and Stanbic IBTC.
observations. The results of panel least square
regression analysis show that certified audit Method of Data Analysis
professionals’ and joint provision of audit and non
non- The data for the study was collected
colle from annual
audit services have statistically significant and reports and accounts of deposit money banks quoted
positive relationship with manufacturing share on the Nigerian Stock Exchange (NSE). The
companies’ external audit quality. On tthe other hand, independent variable is audit quality (AQ).
size of independent non-executive
executive board members and
duality of chief executive officers has a negative and Audit Quality (AUDQUA) = proxy using Audit
statistically significant relationship with large Committee Size (ACSIZ) = proxy using the number
manufacturing shares’ external audit quality. of members in the audit committee.
committee It consists of
those chosen from among the board of directors

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whose responsibility is to ensure that auditors’ Model Specification
independence is kept. Audit Committee Independence The hypotheses formulated for this study were tested
(ACIND) = proxy using the proportion of non non- with the use of logistic regression. This was used to
directors on the board. oard. While the financial examine the relationship
ship between dependent and
performance as the dependent variable was proxy independent variables.
using return on equity (ROE).

The logistic regression for this study takes the form:


ROA = β0 + β1AUDCSIZ + β2ACINDε……………………………………………..i
ROA = β0 + β1AUDCSIZ ε…………………………………………………....…..…ii
ROA = β0 + β2ACIND ε…………………………………………………..………....iii

Where:
AUDCSIZ = audit committee size.
ACIND= audit committee independence.
FINPFM = financial performance proxy by Return on equity.

ANALYSIS OF DATA
Test of Hypotheses Formulated
Table 1: Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .141a .020 .003 .032560
a. Predictors: (Constant), AUDIND, AUDSZE

Table 2: ANOVAa
Model Sum of Squares df Mean Square F Sig.
Regression .002 2
.001
Residual .121 114 1.151 .320b
.001
Total .123 116
a. Dependent Variable: FINPERM
b. Predictors: (Constant), AUDIND, AUDSZE

Table 3: Coefficientsa
Unstandardized Coefficients Standardized Coefficients
Model t Sig.
B Std. Error Beta
(Constant) .084 .043 1.937 .055
AUDSZE -.011 .007 -.143 -1.511
- .134
AUDIND .000 .001 -.017 -.176 .861
a. Dependent Variable: FINPERM

Table 1 above shows that the Model revealed the variable (Beta Column) shows that audit quality is
value of R2 = 0.020 and Adjusted R2value is .003 this positive and significant (Sig.=
ig.= 1.050). Therefore audit
suggests that the model explains about 2% of the quality has a significant effect on financial
systematic variations in the dependent variab
variable. This performance of deposit money banks in Nigeria.
means that the regression explains 2% of the variance Based on this, we reject null hypotheses and accept
in the data. In table 2, it reveals that the F
F-stat (1.151) alternative with state that audit quality has effect on
and p-value
value (0.320) indicates that the hypotheses of a financial performance using g return on equity of
statistically significant linear relationship between the deposit money banks in Nigeria.
dependent and independent ndent variables cannot be
rejected at 5% level. In table 3, the regressed Discussion of Findings
coefficient correlation result shows that an evaluation From the results, audit quality (audit committee audit
of the financial performance of the explanatory committee independence) has significant effects on

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